A new report released today by environmental charity WWF has called on the Bank of England to do more to better support an early and orderly transition to a low-carbon economy.

The charity added the bank is simply not taking climate and nature risk seriously enough.

It added the Bank of England must address the risks posed by climate change and nature loss to manage inflation and ensure the UK’s long-term financial stability.

The report, ‘Too Hot to Handle? The Bank of England’s Role in Stabilising the Economy in a Warming World’, outlines the negative impacts of climate change and nature loss on price stability, financial stability and growth – bedrocks of the UK economy and people’s living standards – and sets out how the Bank of England can better align with and support the transition to a net-zero, nature-positive economy.

Karen Ellis, WWF’s Chief Economist said: “The Bank of England is falling behind compared to other central banks in managing environmental threats to our economy. There is so much more they could and should be doing.  The financial sector has a huge impact on climate change, which is leading to growing economic pressures in the UK, like food price rises and making properties uninsurable due to increasing flood risk.”

“As one of the most powerful bodies tasked with regulating this sector, the Bank of England’s actions matter for climate and nature, and frankly the Bank of England and their well-resourced team must do more.”

The study continued: “Climactic events disrupt food supplies, increase food price inflation, affect price stability and the overall cost of living. Given the UK imports almost half its fruit, vegetables, meat and fish, extreme weather events abroad directly affect the UK.

“The effects of climate change and nature loss on the government’s broader economic agenda is increasingly obvious: the combined effects of climate change and nature loss in the UK alone are estimated to decrease UK GDP by 4.7% by 2030.

“This potentially wipes out any gains from the government’s growth agenda. In addition, climate change was responsible for 60% of the UK’s high street food price inflation in 2022-23 and is expected to cause annual increases in global food prices of 3.23%.”

Just weeks after the Labour government reportedly blocked the publication of a report showing how the collapse of tropical rainforests could push up food prices in the UK, the ONS published its latest UK inflation figures, demonstrating the volatility of food prices which will likely increase because of climate and nature impacts.

The WWF added equally important from a central banks’ perspective, the withdrawal of insurance in the face of unmanageable risk threatens financial stability and individuals’ access to vital financial services such as mortgages.

“Given these impacts, it is incumbent upon all public economic institutions – including those tasked with maintaining financial stability, price stability, well-functioning markets or consumer protection – to play their part in facilitating a net zero, nature positive transition,” the report added.

As such the report recommends that the Bank of England should:

• Improve its analysis of the impacts of climate change and nature loss on the economy, and communicate these findings widely to policymakers, politicians and the public.
• Develop more diverse technical expertise and capabilities on climate- and nature-related risks;
• Conduct a revised climate exercise in the next year, with a timetable set out for future analysis and exercises;
• Conduct a nature stress test in the next 18 months, to adequately respond to regulatory remit letters sent by HM Treasury last year;
• Enhance supervisory expectations for climate- and nature-related risks.
• Align its own policymaking with an orderly transition – drawing on examples of best practice from other central banks around the world, whilst also developing its own innovative proposals.

“These actions will help to deliver long-term UK prosperity and support the government’s economic missions, whilst ensuring that the Bank can continue to deliver on its core mandate,” the WWF added.